Yahoo Lops Off a Limb

Whether losing 2,000 employees who will no doubt flock to its competitors is a good thing for Yahoo is a matter of hot debate, with supporters applauding the dramatic action and others shaking their heads. You can't cut your way to growth, said Mike Tarsala, senior editor of Covestor. Making the layoffs will improve Yahoo's profitability, he acknowledged, "but it won't do a thing to boost revenue that has declined every year since 2009."

By Erika Morphy
04/05/12 7:00 AM PT

Rumors that Yahoo
was prepping for a huge round of layoffs have turned out to be true. On Wednesday, the company announced it would lay off 2,000 employees under a plan designed to prepare it for the future.

Scott Thompson, the company's recently appointed CEO, said Yahoo's larger goal was to focus on its core competency of online advertising -- and it was the pursuit of that goal that required the company to eliminate so many positions.

Yahoo declined to provide further details.

'Any Brain Dead Person Can Do It'

Even though the news was leaked last month, the reaction to the announcement was, in many quarters, scathingly critical.

"Any brain dead person can eliminate positions to cut costs," Trip Chowdhry, managing director of equity research at
Global Equities Research, told the E-Commerce Times. "This is a very big disappointment that Yahoo would take this route."

Chowdhry was not thinking about the toll on the now suddenly unemployed Yahoo workers. Many of these people, he said, will be employed by Google or Facebook or the next Google or Facebook wannabe within the week.

"There is a real shortage of talent in Silicon Valley," he said. "Yahoo is crazy to let go of such a valuable resource."

It would have been far, far better for Yahoo to put those "extraneous" employees to work on creating new products or services, Chowdhry suggested. "Yahoo's management has got its priorities upside down. They are hoping investors will reward them for how smart they are, taking this step."

Some Reward

If shareholders are pleased with this turn of events, they are not showing it with their wallets. Even though the measure is expected to save Yahoo US$375 million a year, Yahoo's stock price has hardly moved from its $15.15 opening price. The high was $15.34, the low $15.

You can't cut your way to growth, Mike Tarsala, senior editor of
Covestor, told the E-Commerce Times. "Layoffs will make Yahoo more profitability," he said, "but it won't do a thing to boost revenue that has declined every year since 2009."

As for the war for talent in Silicon Valley, Google and Microsoft already have benefited from an exodus from Yahoo's research division, Tarsala noted.

"That now may be true at its products division and other parts of the company," he said.

It would be helpful to have some information about Thompson's strategic plan for growth -- a plan that has yet to be seen, said Tarsala.

In broad strokes, Thompson has said he wants to derive more profit from Yahoo users' data.

"Many will be questioning how he can do that while not running afoul of privacy concerns," Tarsala said.

In fact, Yahoo announced last week that it
would be implementing a Do Not Track policy across all of its Web properties.

A Determined CEO

Thompson is doing exactly what he was hired to do, said Umesh Ramakrishnan, vice chairman of CTPartners -- that is, turn the company around.

"I've known Scott Thompson for many years, and the one thing I know about the man is that he is a customer-aligned, performance-oriented executive," he told the E-Commerce Times.

"Investors have been clamoring for change for many years," Ramakrishnan said. "Well, they're about to get it."

More dramatic moves are likely to follow, he added -- and in fact, many analysts have predicted that Yahoo will probably make more layoffs, perhaps even another 2,000 to 3,000.

"Scott will shed any business that is not core to his long-term strategy, reduce costs, and focus on performance metrics," he said. "Whether he will succeed will depend on whether he can get the employees that remain to buy into his vision."